E-COMMERCE
BUSINESS MODELS
AND CONCEPTS
Chapter 2
Learning Objectives
• Identify the key components of e-commerce business
models
• Describe the major B2C business models
• Use an industry competition analysis framework to
describe how e-commerce has impacted the level of
competition in online industries
• Understand key business concepts and strategies
applicable to e-commerce
E-Commerce Business Models
• A business model is a set of planned activities designed
to result in a profit in a marketplace
• An e-commerce business model aims to use and leverage
the unique qualities of the Internet, the Web, and the
mobile platform
• There are eight key elements of a business model
Key Elements of a Business Model (Table 2.2)
Components
Key Questions
Value proposition
Why should the customer buy from you?
Revenue model
How will you earn money?
Market opportunity
What marketspace do you intend to serve, and what is its
size?
Competitive environment
Who else occupies your intended marketspace?
Competitive advantage
What special advantages does your firm bring to the
marketspace?
Market strategy
How do you plan to promote your products or services to
attract your target audience?
Organizational
development
What types of organizational structures within the firm are
necessary to carry out the business plan?
Management team
What kinds of experiences and background are important for
the company’s leaders to have?
Revenue Model (Table 2.1)
• A firm’s revenue model describes how the firm will earn
revenue, generate profits, and produce a superior return
on invested capital
• Most companies rely on one, or some combination, of the
following major revenue models:
• Advertising (Yahoo)
• Subscription (WSJ)
• Transaction fee (eBay)
• Sales (Amazon)
• Affiliate (MyPoints)
• Why may a company want more than one revenue
model?
Competitive Advantage
• Firms achieve a competitive advantage when they can
produce a superior product and/or bring a product to
market at a lower price than most, or all, of their
competitors
• Two of the most common forms of competitive advantage
are lower costs (fixed and/or variable), or better
(differentiated) products or services
• What are some other sources of competitive advantage?
Raising Capital
• Raising capital is one of the most important functions for a
founder of a start-up business
• Many entrepreneurs initially use personal funds (seed
capital) to start their business
• Once such funds are exhausted, if the company is not
generating enough revenue to cover operating costs,
additional capital will be needed
• Sources of capital include:
• Incubators
• Angel investors
• Venture capital investors
• Crowdfunding
B2C E-Commerce Business Models
(Table 2.3)
• E-tailer
• Virtual merchant, bricks-and-clicks, catalog merchant, and
manufacturer-direct
• Community provider
• Content provider
• Portal
• General portals, specialized portals, or search services
• Transaction broker
• Market creator
• Service provider
Other E-Commerce Business Models
• B2B e-commerce business models will be discussed later
in Chapter 12
• Consumer-to-consumer (C2C)
• E-Commerce Enablers (infrastructure and support service
providers, summarized in Table 2.5)
• Server hardware and software, cloud providers, hosting services,
domain name registration, content delivery, site design, mobile
commerce hardware and software, multimedia, security, payment,
performance management, CRM systems, fulfillment, online
marketing services, customer reviews and forums, live customer
service, and Web analytics
Industry Structure
• Industry structure refers to the nature of the players in an
industry and their relative bargaining power
• When you describe an industry’s structure, you are
describing the general business environment in an
industry and the overall profitability of doing business in
that environment
• It is important for firms to assess the level of competition
in their current and/or potential industries (industry
structural analysis)
• The best known framework for assessing the level of
competition in an industry is Michael Porter’s competitive
forces model
Assessing Industry Competition
• Porter’s five forces include:
• The threat of entry of new competitors
• The bargaining power of suppliers
• The bargaining power of customers (buyers)
• The threat of substitute products or services
• The rivalry among existing competitors
• What impact has e-commerce had on industry
competition (based on each of the five forces and overall)
when compared with competition in traditional industries?